Finance

A market-crash expert known as ‘Dr. Doom’ warns a 10-year depression is coming — and says investors are far too confident about a possible recovery

  • Nouriel Roubini, an economics professor at New York University’s Stern School of Business, thinks the economy is hurtling toward a prolonged economic depression.
  • To bolster his thesis, he rattles off a plethora of negative trends and features that are now being exacerbated by the prevalence of the coronavirus. 
  • Roubini thinks the recovery from the virus will be “anemic,” and that markets are pricing in a scenario that is “totally not consistent” with the underlying environment. 
  • Roubini has been nicknamed “Dr. Doom” for his repeated pessimistic forecasts.
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Nouriel Roubini, a professor of economics at New York University’s Stern School of Business, has a knack for calling bubbles.

In 2006, a full-year before the financial crisis sent the global economy spiraling into turmoil, Roubini — who has been dubbed “Dr. Doom” — was calling foul on the housing market. 

Today, in the wake of the coronavirus, he’s warning of a prolonged economic depression spanning the next decade.

“For a quarter or two, it may look like a ‘V’ shaped recovery,” he recently said at the Bloomberg Invest Global conference. “But the way I differ from consensus is that, consensus believes that by next year the ‘V’ shaped recovery is going to continue — that growth is going to be something like 6% in United States, three times as much potential.”

Roubini came prepared with a litany of reasons backing his divergence in opinion, including:

  • Huge piles of public and private debt
  • Aging demographics
  • Disappearing jobs
  • Slack in goods and real-estate markets
  • Deglobalization
  • Rising tensions between the US and China 
  • Negative supply shocks

Although many of these trends were in place before the virus struck, Roubini thinks the coronavirus crisis has exacerbated their ferocity. What’s more, he believes the culmination of these forces will “lead us to a greater depression.”

“There’s going to be a painful process of deleveraging, both by the corporate sector and the household sector,” he said. “They have to be spending less, saving more, and doing less investment, capex, or residential investment.”

That said, Roubini thinks calls for a ‘V’ shaped recovery are dubious. To him, those prognostications are “totally not consistent” with the underlying economic milieu. As a result, he’s projecting more of a ‘U’ shaped rebound that features a stretch of slow growth.

“I see the recovery being strong all in the third quarter, and then fizzling out by the forth quarter, and then becoming very anemic by next year,” he said. “Most firms are highly leveraged. They have to survive and thrive by cutting costs and saving more.”

As financial stress mounted during the ongoing crisis, the list of notable virus-induced bankruptcies gained steam. Roubini thinks there are more to follow.

“So many firms right now are either bankrupt or on the verge of bankruptcy,” he said. “They have to take action to try and survive.”

“How are they going to do it?” he asked. “By reducing labor costs. First, firing people and then rehiring them in a more flexible way. The trouble is that what’s my labor cost is somebody else’s labor income.”

In Roubini’s mind, all avenues seem to lead to less growth and a sub-par, sputtering economic recovery for years to come.

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